Auditors urge greater oversight of homestead credit

Scott Calvert, The Baltimore Sun

State tax officials should take steps to help ensure that Marylanders who receive the homestead property tax credit remain eligible for the popular discount, auditors said in a report released Wednesday.

Auditors also said state officials should methodically review some past recipients to identify owners who have gotten large tax discounts improperly — and who should refund the government.

"There are ways to be proactive about this and not depend on people providing tips," state Legislative Auditor Thomas J. Barnickel III said in an interview Wednesday.

Based on a limited review, auditors estimated that more than 4 percent of the Maryland property owners now deemed eligible do not actually qualify for the credit. The tax break is limited to owner-occupied homes.

The director of the Maryland Department of Assessments and Taxation said he agreed with many of the auditors' recommendations, some of which were already planned.

But Robert E. Young said the department would need more money to hire employees to carry out some changes. In addition to asking for a budget increase, he said he would like to see local governments pay for continuing eligibility reviews.

"The auditors and the department don't disagree about how to handle it going forward," the director said. "It's just a question of what is the commitment of resources we're going to be able to maintain?"

The so-called performance audit was requested by a Baltimore state lawmaker after a 2011 Baltimore Sun investigation found that hundreds of outsized homestead tax breaks in the city were caused by administrative errors, lax oversight and people receiving credits to which they were not entitled under the tax law.

In January 2012, state officials moved to revoke the breaks for more than 550 homes in Baltimore after a Sun analysis found that individual owners were getting a tax discount on as many as four houses. Under state law, an individual or married couple is entitled to a credit only on a primary residence.

The homestead credit is a state program that caps increases in taxable assessments at 10 percent a year. Local governments can go lower, and Baltimore has long set its cap at 4 percent. This year the program has saved 90,000 city homeowners a total of $95 million.

State officials have said that a relatively recent requirement that property owners file an application for the credit will keep most owners from getting discounts on a house they don't live in, or breaks on multiple homes.

The application deadline was Dec. 31, though Young expects lawmakers to extend it to the end of this year.

The agency uses federal tax records to verify residency as part of the one-time application. But auditors called on the agency to do similar kinds of checks down the line to help flag properties that later lose eligibility — say, when an owner moves and rents out the house — and they recommend improving the screening process for applications.

Auditors want the state to review cases in which owners who had been receiving the homestead credit did not submit papers to keep getting the break before the deadline, on the theory that some of them might have become ineligible and could be liable for several years' worth of unwarranted discounts.

"Prioritize them," Barnickel said. "Those with the highest credits, work through those first."

Del. Samuel I. "Sandy" Rosenberg, the Baltimore Democrat who requested the audit, said he was "heartened" that Young agrees with many of the recommendations.

"At a minimum, the things they agreed to do should result in better operation of the credit and less improper use of the credit," he said.

After analyzing 114 randomly selected properties, auditors found five were incorrectly listed as being eligible for the homestead credit this year.

Extrapolating, they said their "best estimate" is that about 59,000 properties statewide — or 4.4 percent of the 1.34 million deemed eligible by the agency — were incorrectly listed as being qualified.

Auditors also reported that the data matches they used to test homestead recipients against motor vehicle and other databases found "numerous instances" where properties were improperly deemed eligible for the homestead credit.

Young said using motor vehicle records would be fruitful for ongoing checks. He said the Motor Vehicle Administration has agreed to give his agency access to automated information instead of requiring officials to key in names manually.

"My position is that the audit indicates the department has done a good job based on the limited number of employees we have," he said.